MBA1900 Q&A Wednesday: How do I forecast purchases and inventory of goods for future sale?

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Hey oh welcome to the $100 MBA show, the business podcast that always got your back every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014 and today's episode is Q and A Wednesday. On Q and A Wednesdays, we answer a question from one of you, one of our listeners. If you got a question you want to ask, just go ahead and email me over@omar00mba.net Today's question is from Ron and Ron asks how do I forecast purchases and inventory of goods for future sale? Ron wrote in a question that's very interesting. Anybody who's in E commerce or sells any physical product is going to be interested in today's lesson. And he runs a wholesale auto parts business. Generators, heavy machinery parts, oil, batteries, you name it. This company is based in Dubai and he exports these parts to his customers around the world. But he would love to nail his inventory forecasting. This means knowing how much inventory you should have on hand at any given time to make sure he has enough for potential sales. One of the worst things that you can experience in any kind of physical product business is not getting your inventory right. Meaning that you have customers wanting your product, want to buy your product, but you don't have any in stock. This is a missed opportunity and should be avoidable. The key here is to order the right inventory. To have the right inventory on hand, you don't want too much of it or too little. You want the right amount based on sales. So in today's episode we're going to talk about how can you forecast sales? How can you make sure that you're ordering inventory just in time so you never run out. Let's get into it. Let's get down to business, okay?

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If you have a business that sells physical goods, whether it's an E commerce store or a brick and mortar store, you got to make sure you have the right inventory on hand. Remember, inventory costs money. You don't want to spend money too early. You want, you don't want too much inventory. This is a big problem because it actually costs you to store it and to take care of it. And if it's inventory that goes bad, like a perishable good or even fashion that, that goes out of style, you need to have the right amount of inventory so you don't have a 0 stock of any of your products at any given time so that you're always ready to serve your customers. This is why Ron's question is so, so important. And this is a challenge every physical product business is going to go through. I know I went through it when I had my own clothing line and I had to get this equation really right. Now I want to start by saying that when I ran my business over a decade ago, there was no sophisticated software that can really predict your inventory based on your sales, based on the history of your sales. But today there's a lot of software options for that problem. So you can literally plug this into your store or into your system, your software, and it will tell you, hey, order more inventory. One of the more popular ones is sortly, sortly.com and to some extent Shopify has some of these tools built in. But if you're not using any of these tools, what's the theory or the formula behind this behind forecasting the right inventory for your stock? And in my experience, it's three factors that you have to kind of calculate to get this right. What are those three factors? The first factor is how many units of a particular item do you sell per month? Now this is incredibly hard if you're a new business because you don't have any history. And in this advanced world of analytics, data is king. You need to have data on hand. Luckily, Ron, who asked today's question, he's been in business for over a decade. So he's got plenty of data on what sells and what doesn't, and how much does he sell of each product. But even if you have a quarter of a data, meaning three months of data, this is a start. And what I did is I actually broke up my data into quarters, because some quarters or some months will be busier than others. So an example in Q1, I sold 300 units of this particular item. And since I was in clothing, I actually had it down to the sizes. I knew exactly how many of each size and how many each color or pattern each of those items sold on a given quarter. Why do I want to know that? Because I'm going to use that information to know when to replenish my stock. The other piece of data I need, the second piece of data, is how long does it take for me to receive my new inventory. So say, for example, it takes two weeks for me to get my new inventory for a particular item. And the third factor is how much money do I have on hand to order this inventory? Now, this has a lot to do with your cash flow, because I don't need to order so often. If I have an abundance of cash flow, it actually would cost me less in the long term because I'm ordering by bulk a larger amount in the order, and therefore I could save some money in the long term. But let's say cash is tight and you only order when you need. And that's what a lot of businesses do in the beginning until they have a bit of Runway and they have a bit of, you know, money in the bank to order a little bit more each time. So say, for example, Again, I sell 300 units of a particular item in one month, and I know it takes two weeks for me to replenish my inventory. So let's go back to our example. I sell 300 units of a particular item in one quarter, and it takes me two weeks to replenish my stock. And I know my third factor is my cash, and I can only afford 300 items every three months. The exact amount I sell, I then know by the time I get to 2/3 into the quarter, meaning 2 months into the quarter, I need to order inventory. Why? Because I know it's going to take me at least two weeks to replenish my inventory and get those 300 new pieces and it gives me two weeks to spare just in case there's a delay in transport, there's a delay in receiving it, or my estimate of how much I sell in a quarter is a little bit off. What I used to do is I used to go mid quarter. I mean, six weeks in, I would reorder the stock. And if I order too early, I have too much stock in the next quarter. I can adjust accordingly. But it's safer to go a little bit over in the beginning because you don't want to be left out of stock. Of course, all these numbers will vary to your business. How many units you sell each quarter, how long it takes for you to restock, and how many do you order or can order every single quarter? And in the beginning, my process is very manual. Before I actually coded my own software into my system, it was just a spreadsheet and a calendar reminder. I literally just put a calendar reminder when I was supposed to order. I'd placed the order that day so I can make sure that I was replenishing my stock in time. Now, I am aware that this can get very complicated, and it's not that simple when you have thousands of different items that you sell. I was more in the 30 to 40 different items I sold. But when you have thousands of items, it can get really, really complicated because not every item is going to have the same delivery time or sell the same volume. And this is why people will use software. Like I mentioned in the beginning, this episode, the other thing we need to consider are our suppliers. Suppliers don't always work like clockwork. They have their own delays. They have their own things that they need to consider to manufacture the product. But if you're in a business like Ron, like auto parts that don't necessarily go bad or expire, you have a little bit more leeway. And that's why ordering in advance really helps. This is really, really challenging if your margins are thin because you need to sell to order. And this is why I always say, if you're in the arbitrage space or the resale space or the wholesale space, it's very hard for you to compete on price because price will dictate so much of your business. Instead, what you want to do is you want to add more value to your company in a form of a service, that you're selling more than just a product. You're selling an experience in purchasing that product. Now, every niche can add that experience in some way. For something like car parts, it could be an easier way to order or some sort of integration in their own systems or it could be faster delivery or something that they really, really would prefer in the process of ordering your.

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Customers only one year contract required for guaranteed rate. Five year pricing applies to monthly service charge excluding taxes and fees. Best WI Fi based on Open Signal Awards USA Fixed Broadband Experience Report May 2025 to wrap up today's lesson and today's question from Ron Predicting your inventory is something that can really, really help you prevent keep sales flowing. But your sales flow is contingent on how much money you have on hand to buy your inventory and how long your inventory takes to reach you before you actually run out of inventory. So what I like to suggest if you're just getting started, unlike Ron who asked the question is to start low, start with low inventory and if you do sell out, that's okay. It's better for you to sell out in the beginning than to be overstocked and be out of pocket. By selling out, you know where your limits are. You know now how much to order and how much over ordering looks like. Thanks so much for listening to the Hundred Dollar MBA show. If you got a question you want to ask here on Q and A Wednesday, go ahead and ask it. Just email me over@omar00mba.net and you can get your question answered right here on the show just like Ron did. Thanks Ron for the great question. Before I go, I want to leave you with this. One of the things that I made sure of when it came to my physical business back in the day in my clothing line is building a great relationship with my suppliers, the people that allow me to have inventory. Right? I like to first experiment and try different suppliers. In the beginning I actually spent about a good six months trying over a dozen suppliers for my products, or at least the materials for my products as I was doing hand tailored clothing. The reason why I did this is because I'm going to find the right materials, the right product, the right quality and the right system like they actually are of their word. They're organized, they're on time, I can really work with them. Once I found that supplier and it was probably down to two or three suppliers at that point, I went deep in that relationship. I wanted to build a relationship with those two or three suppliers because hey, this is going to be a long term thing. I want to make sure that there's some trust building here. So I really invested a lot of time and actually money in building that relationship, meeting him in person, having meals. I know that sounds like a lot in a digital world, but it actually makes a difference because people will prioritize you based on relationships. And this is the bloodline of an E commerce business, of a physical business, your stock. So invest in those relationships because they matter a whole lot to the success of your business. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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